What Is The Supply Chain Maturity Model?
Supply chain management is a critical component of business success, impacting everything from cost management to customer satisfaction. Yet, many businesses struggle to optimize their supply chain processes. The supply chain maturity model offers a structured approach to assess and improve these processes, guiding businesses toward greater efficiency and strategic advantage.
In this article, we'll explain the concept of the supply chain maturity model, explore its stages, and highlight the benefits of advancing through these stages.
Section 1: Understanding the supply chain maturity model
The supply chain maturity model is a framework that categorizes the development of supply chain processes and practices into distinct stages. Each stage represents a level of sophistication and integration in managing supply chain activities, from basic operations to advanced, strategic orchestration.
The maturity model serves as a roadmap for continuous improvement. By understanding their current stage, businesses can identify areas for enhancement, implement best practices, and progressively advance to higher levels of maturity. This progression enables businesses to achieve greater efficiency, cost savings, and competitive advantage.
Section 2: The stages of the supply chain maturity model
Stage 1: React
At the React stage, businesses often find themselves constantly putting out fires. The supply chain is driven primarily by budget constraints and sales targets, with little to no predictive capabilities. Operations are highly reactive, relying heavily on historical consumption data to make purchasing decisions.
A typical day might involve local planners and buyers issuing purchase orders based on directives from operations or historical data, with no real-time visibility into current inventory levels or supplier performance. This often leads to either stockouts or excess inventory, causing significant disruptions and increased costs. Production capacity is adjusted on the fly based on the previous period's performance, with no formal production sequencing tools in place. The lack of planning results in inefficiencies and high operational costs.
Stage 2: Anticipate
In the Anticipate stage, businesses start developing predictive capabilities. Demand forecasting begins to take shape, and periodic inventory analysis is conducted to better manage stock levels. Sales and Operations Planning (S&OP) is introduced, but it primarily serves as a reporting exercise without strong links to execution.
A company at this stage might generate demand forecasts based on historical sales data, but these forecasts are not integrated with capacity or materials supply planning, leading to discrepencies between supply and demand. Inventory analysis might be conducted quarterly, providing some insights but not enough to drive continuous improvement. Rough-cut capacity planning (RCCP) is used to validate the feasibility of the unconstrained demand plan, but discrepancies between planned supply and actual demand can still create order backlogs or push-based shipments to outside warehouses.
Stage 3: Integrate
At the Integrate stage, businesses achieve higher coordination between supply chain functions. Planning and execution are integrated, enabling more accurate and efficient operations. Detailed capacity planning ensures that production schedules are optimized to meet demand without overextending resources.
A company operating at this stage uses advanced software to integrate demand forecasts with constrained capacity and inventory planning. Sales, Inventory, and Operations Planning (SIOP) becomes a systemic process that drives decision-making. Production plans are based on detailed capacity constraints, allowing for optimized resource utilization. Exceptions are easily identified, and remediation actions are proposed quickly. Slow-moving stock is reviewed regularly, and inventory plans for strategic materials are derived from an optimized SIOP operating plan, ensuring timely procurement decisions.
Stage 4: Collaborate
Businesses at the Collaborate stage move beyond internal integration to external collaboration with suppliers and partners. This stage focuses on building strong relationships and sharing information across the supply chain network to optimize overall performance.
A business in this stage uses network supply models to shift from reactive problem-solving to proactive, exceptions-based management. Multi-echelon inventory strategies are employed, supporting differentiated service targets and dynamic safety stock deployment. Capable to Promise (CTP) visibility across the network allows for optimized order fulfillment. Companies collaborate closely with suppliers to manage constraints for bottleneck materials, and S&OP supply plan reviews include risk mitigation and opportunistic buying decisions for strategic materials.
Stage 5: Orchestrate
At the Orchestrate stage, businesses achieve the highest level of supply chain maturity. This stage is characterized by strategic planning and dynamic orchestration across the entire supply chain network, both internal and external. Advanced analytics and integrated processes enable businesses to continuously adapt and optimize their operations.
A company at this stage conducts long-term planning simulations to identify capital investments and necessary adaptations in the supply network. Strategic supply planning capabilities enable segment-specific delivery of custom solutions from extended multitier networks. Dynamic orchestration between network nodes, both internal and external, is facilitated by integrated processes and advanced analytics across selected adjacent functions, ensuring a seamless network response to market changes.
Section 3: Benefits of advancing through the stages
Increased efficiency and reduced costs
- Streamlined processes eliminate redundancies and inefficiencies
- Optimized inventory management reduces carrying costs
- Efficient resource utilization lowers operational expenses
Improved supply chain visibility and decision-making
- Enhanced data integration provides real-time insights
- Better forecasting and planning improve decision accuracy
- Visibility into end-to-end supply chain operations enhances control
Enhanced collaboration and integration across the supply chain
- Stronger partnerships with suppliers and customers
- Improved coordination and communication reduce delays and disruptions
- Integrated systems enable seamless information flow
Strategic advantages and long-term sustainability
Section 4: How to assess your current supply chain maturity level
Key metrics and indicators to evaluate your current stage
- Inventory turnover rates: Measure how quickly inventory is sold and replaced
- Forecast accuracy: Evaluate the precision of demand forecasts
- Level of integration: Assess the extent of system and process integration across the supply chain
- Collaboration with suppliers: Gauge the depth and effectiveness of supplier partnerships
Self-assessment tools
- Online tools and questionnaires can help businesses determine their maturity level by evaluating key metrics and practices
- Examples include maturity model assessments provided by supply chain consulting firms or industry associations
Importance of knowing your starting point
- Understanding your current stage is crucial for setting realistic goals
- Helps in developing a targeted roadmap for improvement
- Provides a baseline to measure progress and track improvements over time
The supply chain maturity model is an invaluable tool for businesses aiming to enhance their supply chain operations. By advancing through the stages, organizations can achieve greater efficiency, cost savings, and strategic advantage.
Assess your current maturity stage and start planning your journey towards a more sophisticated and effective supply chain.
